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Proposed SEC Rule Could Damage Whistleblower Program

The Securities and Exchange Commission (SEC) whistleblower program has been an undeniable success since its launch, leading to millions of dollars’ worth of awards to several dozen whistleblowers in that time.

Now, the agency has proposed several amendments to the program that have drawn some controversy, as they could implement limits on the size of awards whistleblowers can earn from successful enforcement actions resulting from their “unique” and “actionable” information.

Changes coming to whistleblower program?

Under the program as it currently exists, whistleblowers who provide information that helps the SEC bring a successful enforcement action can receive 10 to 30 percent of the agency’s recovery. This serves as an additional incentive for whistleblowers to come forward with what they know, especially those who have knowledge of large-scale fraud that could result in particularly valuable awards.

Under the new rules, the Commission would have the power to reduce or enlarge awards depending on a variety of factors. This would be beneficial for people who would otherwise earn less than $2 million, which accounts for about 60 percent of the awards handed out so far. However, for awards of more than $30 million, this could result in reduced payments, based on an analysis of “the value of the whistleblower’s information and the personal and professional sacrifices made in reporting the information.” This adds some subjectivity to a process that has been largely objective—what metrics would the Commission determine merit in such circumstances?

Of course, a whistleblower would still be earning a significant amount of money even with a reduced payment, but those against the amendment are wary of taking anything away from what a whistleblower could potentially earn, as lower payments could take away from their incentive to report.

It remains to be seen whether or not the SEC will actually enact these proposals, but given the massive success the program has had so far, it seems ill-advised to make such major changes. For more information about how to make a whistleblower report through the SEC, speak with an experienced attorney at Kardell Law Group.

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